Changes in Europe will help to raise the region's strategic
profile The Brussels-centric view of Europe inevitably places Greece
on the periphery of the continent, separated from the populous
industrial heartland by a mysterious and ill-defined zone called the
"Balkans". But two powerful forces are at work which will drastically
change the region's relative isolation from the modern European
mainstream. The first is the shift in the European centre of gravity
to the east as the German capital moves from Bonn to Berlin and
eastern enlargement of the European Union brings the contiguous
states of Czechoslovakia, Hungary, Poland, as well as Slovenia and
Estonia, into an enlarged central European heartland.

The second seismic shift in the geo-strategic pattern is in the
opposite direction and will bring the oil and gas-rich western part
of central Asia and the Caspian region into closer economic and
political contact with Europe.

The result will be to raise the strategic importance of the Black
Sea and the Mediterranean and Black Sea littoral countries which are
expected to be the prime markets for the oil and gas transported from
central Asia via Russia, the Caucasus and Turkey.

One of the challenges facing Greece, currently an isolated outpost
of the EU in the Balkans, will be how best to position itself to
benefit from these broad currents which promise to transform the
economic and political prospects of the Balkan and Black sea region
as a whole. But the key decisions affecting the region's future
prosperity are likely to pass over the heads of the smaller
countries.

Exploiting, processing and transporting oil and gas from the
Caspian region is big politics and big money. All the new producing
countries want to ensure maximum revenues to finance their own
broader economic development. The main strategic decisions, however,
will be taken by the oil and gas multinationals who will put up the
billions of dollars required. These decisions will have to be
acceptable to those countries whose goodwill is required to ensure
safe and reliable exit routes for the large volumes of oil and gas
expected to flow westward.

Whether Greece benefits directly from the new energy flows depends
largely on how much of the oil flows across the Black Sea and how
many oil tankers Turkey is prepared to allow through the already
congested Bosphorous. Turkey's determination to play the
environmental safety card to the full is partly due to genuine fears
about the risks of shipping ever-increasing quantities of oil through
the heavily populated Bosphorous. But such risks are also ammunition
to support Turkey's own strategic desire for the bulk of Caspian oil
to flow through Turkish pipelines to its Mediterranean port of
Ceyhan, terminal of the currently under-used pipeline from the Iraqi
oilfields.

For political and logistical reasons the oil companies are
expected to insist on several export routes, including one across
southern Russia to Novorossiysk. Work is already under way on
re-building the smaller pipeline which runs from Azerbaijan through
Georgia to the port of Supsa. The fate of Greek-Bulgarian plans to
build a 300-km pipeline from the Bulgarian port of Burgas to the
north Aegean port of Alexandroupolis depends greatly on the volumes
of oil which will ultimately be transported across the Black Sea from
these Russian and Georgian ports to markets in the Mediterranean.

The advantage of the proposed pipeline is that it by-passes the
Bosphorous bottleneck. The disadvantages are the high costs involved
in repeatedly loading and unloading operations and the environmental
dangers in taking tankers through the Aegean with its island resorts
and multitudinous cruise ships, yachts and small boats.

Meanwhile, the change of regime in neighbouring Bulgaria has
improved prospects for the pipeline. Bulgarian participation is no
longer perceived as a state venture but is open to private
investment, according to Alexander Bozhkov, the deputy prime
minister. Mr Bozhkov masterminded the rapid privatisation policies
which have helped to transform the prospects of Greece's northern
neighbour.

Whatever the outcome of the pipeline project it is clear that
economic recovery in the Black Sea region provides Greek banks and
companies with the potential not only to take part in the region's
privatisation process but also to benefit from expected higher living
standards in the populous countries around the Black Sea. These
include the 25m consumers in Romania and the 50m in Ukraine.

Greek companies, however, will face increasing competition from
low cost but increasingly high quality central European companies and
from Turkish banks and companies well entrenched in central Asia and
other parts of the former Soviet Union.

The big question mark hangs over the future of Greece's western
neighbour, Serbia. Belgrade is embroiled in a violent stand-off in
Kosovo which is pushing Serbia further into isolation and bankruptcy
and risking de-stabilisation in Macedonia and Albania itself. Greek
companies such as OTE have learnt the hard way that under the present
regime Serbia is not a fit place for foreign investors. But the
endgame is approaching for President Slobodan Milosevic. His
successors will have a chance to rebuild the economy with
international assistance - provided they show the convincing
political will for reform displayed by the new Bulgarian government,
and with less success so far, by the Romanians.